When It Comes to Super Expensive Homes, Buyers Decide Prices

Plus, Miami and the Zika effect, an "intentional" city grows in Georgia, and more real estate stories from around the globe this week

BY ANNE MACHALINSKI

| ORIGINALLY PUBLISHED ON August 26, 2016

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Last week, a buyer closed on the storied Playboy Mansion for a record-breaking $100 million. Based on the property’s size, it went for just under $5,000 per square foot—reputable by any luxury standards—but it also happened to be half the $10,000-per-square foot, $200 million asking price.

Like the Playboy Mansion, there are a currently a handful of Southern California properties on the market with price tags well above $100 million. Additional ultra-luxury spec builds are also being raised, including a Bel Air mountaintop manse dubbed The One, which will list for a reported $500 million when it’s completed in 2017.

A mansion on Manhattan’s Upper East Side, plus others in Florida and China, are also on the global $100 million-plus list, which is topped by a castle-like property in the south of France that recently came to market for 1 million Euros — $1.1 billion.

Based on all this activity, we wanted to know: Are these prices real? How are they determined? And is it a price correction to sell a property at this level for half the listing price?

The key takeaway: An ultra-luxury property’s value is still loosely based on price per square foot, lot size, location and amenities. But because each of these properties is one-of-a-kind, with what Manhattan-based appraiser Jonathan Miller called "the best of the best," the final number can be reached only by developing a new price determination model every time.

This calculation includes evaluating just how unique the property really is, determining whether it will cater to the lifestyle of the few multi-millionaire and billionaire buyers out there and considering the best way to draw significant press attention and get more eyeballs on the listing. Ultimately, though, it is the buyer who dictates the real value.

"When it comes to properties of this magnitude, as the saying goes, you shoot for the moon, and even if you end up among the stars, you’re happy," said Adam Rosenfeld, a founding partner at Los Angeles luxury brokerage Mercer Vine, who is representing a much publicized Beverly Hills spec build, set to be listed for $100 million when it’s completed in 2018.

The Playboy Mansion is a good example of this, he said. While no one knows what the seller’s expectation was, "if they didn’t ask for $200 million, there’s a chance they wouldn’t have gotten half that."

Because everyone knows these stratospheric prices are often hugely negotiable, agents like Susan Smith of Los Angeles’ Hilton & Hyland bring clients by to see these top-tier properties even if their real budgets are well below the $100 million threshold. "If I have a client that’s looking to buy a property for $70 million-plus, I will show them even the $200 million home," Ms. Smith said. That rule doesn’t apply to people with smaller budgets—say, $20 million— as there are plenty of properties that list and sell around those price points. "It’s only when you get to that $70 million-plus budget that you could basically show them everything," Ms. Smith said.

At that level, the agents agreed, it’s the buyer, not the market, that determines the final price.

A sale price that is significantly below asking, Mr. Rosenfeld said, does not really reflect the overall market. "It feels really difficult to call a $100 million sale a price correction," he added, describing such sales instead as open auctions.

"When you have such a limited buyer pool, everyone understands that properties like this are going to go to the highest bidder, regardless of price," he said.

James Harris, of Los Angeles-based brokerage The Agency, agreed. "Whether you’re buying a piece of art, a yacht or a super luxury home, it doesn’t matter what you or I or the seller thinks it’s worth," he said. "It’s really worth what someone is willing to pay for it. Then the seller has to make a decision if that’s a number they’re willing to take."

In Manhattan, a number of properties with $100 million price tags were announced with great fanfare over the last few years, but they never actually sold, Mr. Miller said. "They just faded away, because they were really never worth that," he said.

Whether there will be enough buyers to take on the new crop of ultra-luxury listings remains to be seen, Mr. Harris said. That’s "the billion-dollar question that we don’t know the answer to," he continued. "We will have to wait and see to find out."

Here’s a look at other news from around the world compiled by Mansion Global:

Cities that Suffered the Most During the U.S. Housing Crash are Back—With a Vengeance

As housing markets across the U.S. continue to trend upward, areas that were devastated during the housing crash are now seeing some of the sharpest price increases, according to a new report from the National Association of Realtors. Markets in Miami, Las Vegas, and parts of Arizona and California are seeing double-digit increases and brisk demand after bottoming out in the crash, but experts say it’s the result of healthier growth this time around. A variety of factors, including tighter regulations, strict lending practices, higher down payment requirements and fewer speculators prowling the market, have all helped to "build a more balanced market," said David Blitzer of S&P Dow Jones Indices. (The Washington Post)

In response to global economic uncertainty, as well as the sharp recent drop in oil prices, demand has cooled for office space in Dubai, part of a larger economic downturn across the Gulf. Cluttons' bi-annual Dubai Office Market Bulletin finds that more "prime" properties have relatively steady demand and a vacancy rate of around 5%, while "submarkets" and lesser commercial properties in the city have vacancy rates closer to 20%. And while rents have either remained stagnant or dropped for most office space in the city over the last six months, as landlords increase incentives in an effort not to go below a certain rent, prices are unlikely to fall much further in the near future. (World Property Journal)

You Can Now Buy the Most Expensive Sporting Estate in Scotland

A 21,000-acre estate in the Scottish highlands has hit the market for a record-breaking £25 million, outfitted with everything from a sprawling Edwardian lodge to a two-bedroom cottage, ample shooting and fishing grounds, and five farms that produce their own beef, lamb, fruit and vegetables. Over the decades, the Tulchan estate has played host to the likes of King George V, Theodore Roosevelt and William Vanderbilt. (Luxury Listings NYC)

One arena in which 1990s nostalgia is decidedly not taking hold: The market for so-called McMansions has slowed way down, to the point that the oft-mocked, mass-produced luxury homes no longer provide a reliable return on investment in many U.S. cities. Though their value is still seeing gains in parts of the Midwest and on Long Island, according to data from Trulia, premiums between 2012 and 2016 have fallen by 84% in Fort Lauderdale, Fla; 46% in Las Vegas, and 42% in Phoenix.(The Dallas Morning News)

The area around Miami Beach’s convention center—a neighborhood full of hotels, restaurants, shops and luxury properties popular with real estate investors—has been declared a "Zika active transmission zone." Governor Rick Scott has pledged "full support" to businesses suffering economic harm from the Zika designation, but in Wynwood, another Miami area marked as a Zika zone, industry insiders say they saw temporary drops in business of up to 60%, with little help from the state government in the interim. (The Real Deal Miami)

Chinese Buyers are Flocking to Perth

Bucking a trend of decreased interest in Australian properties among Asian buyers, Perth has seen an influx of Chinese purchasers this year. Markets in Melbourne and Sydney have begun to seem overheated, the number of Chinese buyers searching for homes in Perth on realestate.com.au has increased 11.6% since this same time in 2015, and the majority of these buyers are owner-occupiers, according to local real estate agents. Besides the city’s relative value compared with other Australian hubs, agents cited schools, river views and "fresh air" as Perth’s major draws. (PerthNow)

How One Chinese Company is Constructing an Entire New City in the Georgian Countryside

A large new "intentional city" is springing up north of the Georgian capital, Tbilisi, at the hands of the Hualing Group, a private Chinese company whose founder has taken a special interest in the country. Hualing Tbilisi Sea New City is the result of a deal Hualing struck with the Georgian government to create facilities for the 2015 Youth Olympics, in exchange for the rights to develop when the games were finished. The city currently has around 1,000 families in residence and will eventually include hospitals, schools, hotels, retail and more Chinese-style row housing. "We contribute to employment, we contribute to the development of the economy," Hualing representative Giorgi Botchorishvili said. "Hualing will also stimulate the tourism, airline and energy sectors." (Forbes)

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DISCLAIMER: The currency conversion is provided for illustration purposes only. It is meant only as an approximation based on the latest information available and should not be relied upon for any other purposes. We are not responsible for any loss that you may incur as a result of relying on these currency conversions. All property prices are as stated by the listing agent.

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